Denmark’s five biggest banks face as much as $15 billion in new capital requirements under proposed changes to global banking rules, according to an expert panel created by the government.
Danske Bank A/S the country’s biggest financial group, and others will together see their capital requirements rise 27-39 percent, equivalent to 64-92 billion kroner ($15 billion), the panel said. In the same report, the expert panel rejected the need for the additional capital burden. And the government underscored its commitment to fighting the requirement.
The Basel Committee on Banking Supervision is considering imposing a lower limit on regulatory buffers after studies indicated banks were designing their own risk-measurement models to cut their capital requirements. Opposition, particularly from Europe, has delayed a final decision.
The Danish expert panel, convened in February, said the Basel proposal failed to account for low mortgage lending risks in Denmark and warned a floor would increase incentives for banks to engage in riskier activities. That would stoke, rather than reduce, financial instability, it said.
Finance Minister Kristian Jensen said the center-right government is keen to do what it can to reduce regulatory pressure on the country’s banks.
“There’s a lot more we can do to alleviate the pain for Danish financial institutions,” he said in an interview in the Danish city of Aalborg. The administration is working to ensure that, if the Basel proposal passes in its current form, the European Union will work with Denmark to “take into consideration the low risk-weighting of Danish mortgage bonds,”
“We’re trying everything we possibly can to reduce capital requirements for the Danish mortgage industry,” Jensen said.
The report looked at group level figures for Danske, Nykredit Realkredit A/S, Jyske Bank A/S, Nordea Kredit and Sydbank A/S, according to the Financial Supervisory Authority. Under the current regulatory outlook, the banks face a requirement of about 236 billion kroner, including fully phased-in buffer requirements. (A separate countercyclical buffer was set at zero.)
Denmark’s biggest commercial banks had 260 billion kroner in Tier 1 capital at the end of last year, according to the FSA.
That was up 5.7 percent from a year earlier amid industry efforts to build loss-absorbing buffers. Mortgage lenders (some of which are units of commercial banks) had another 188 billion kroner in Tier 1 capital.
Danske Bank had a CET1 of 16.2 percent of its risk-weighted assets at the end of June, according to its second-quarter report.